War on inequality lacks solid rationale

Updated 5:08 pm, Tuesday, December 17, 2013

Photo: Evan Vucci / Associated Press

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President Barack Obama speaks about the economy and growing economic inequality in Wash-ington. The president said the income gap between America's rich and poor is a “defining chall-enge of our time.” Had he relied on proper research, he might have eased up on the indignation. less

President Barack Obama speaks about the economy and growing economic inequality in Wash-ington. The president said the income gap between America's rich and poor is a “defining chall-enge of our time.” Had ... more

The president's formal declaration of hostilities came recently in a speech at the Center for American Progress, predictably praised as brilliant by his journalistic cheerleaders and touted by the White House as setting out the cause that will define the rest of his presidency.

While LBJ's war on poverty is nothing to emulate — it costs $900 billion a year, yet has failed in the stated goal of uplifting the poor — at least it had a clear rationale. Who can disagree that it would be better if fewer Americans were poor? Obama's argument is that it would be better if fewer Americans were rich, or at least if they weren't so offensively rich.

He relied on dubious research and tendentious analysis to make his case. Surely, income inequality offends his egalitarian sense of justice and aesthetics, and even if he didn't believe it had harmful effects, he would wish the top 1 percent weren't so wealthy as a social good in and of itself.

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There is no doubt that we long ago exited the economic Golden Age of the mid-20th century, and we aren't going to return to it.

In his speech, the president said that inequality is bad for the economy and cited “one study” showing that greater income inequality means more fragile growth and more frequent recessions. Of course, “one study” can show almost anything. The study in question analyzed developing economies. Scott Winship of the Manhattan Institute points out a review of the literature by the Center for American Progress stipulated, “Ultimately, data and methodological issues mean that analyses are too imprecise to deliver definitive answers to this old and central question in economics research.”

Needless to say the president didn't mention any such caveat. He could just as easily have said that “one study” by a Harvard economist showed a correlation between increasing inequality and higher economic growth in the U.S. and other developed countries between 1960 and 2000. He could have said that “another study” by a University of Arizona showed much the same thing.

To maintain that rising inequality is a threat to the American Dream, the president insists that it is reducing income mobility. Here the evidence is just as weak. According to Winship, the gap between the middle class and the poor hasn't grown much during the past few decades. It has been the very top of the income distribution that has gained the most. Has this diminished mobility?

Winship crunched the numbers for men born in the early 1980s, who experienced widening income inequality, and compared them to men born around 1950, and found almost no difference. “Among those raised in the bottom quarter of the family-income distribution,” he writes in the journal National Affairs, “the fraction escaping the bottom fourth of earnings as adults fell from 63 percent to 60 percent, a decline too small to be reliably different from zero.”

The United States does indeed have a serious mobility problem, especially in getting people out of poverty. But it has nothing to do with a small fraction of people being spectacularly rich. Mark Zuckerberg could be stripped of all his wealth tomorrow, and it wouldn't help anyone further down the income ladder. It wouldn't increase wages, or reduce out-of-wedlock child rearing, or lead to less incarceration or revive the work ethic, all of which would enhance mobility and lift more people into the middle class. It would just make Mark Zuckerberg poor.